FRIDAY, AUGUST 03, 2012

SECTOR COMMENTARY

The energy sector rallied higher today in line with the broader equity markets following a report that showed employers hired the most workers in five months in July, giving a lift to sentiment however at the same time a rise in the unemployment rate to 8.3% kept alive the possibility that the Federal Reserve could provide additional stimulus to the economy.

WTI crude futures jumped $4.27 or 4.9% to $91.40, their biggest one-day percentage gain in five weeks, after an unexpectedly strong jobs growth in July sparked upbeat sentiment on the oil demand outlook.

Natural gas futures dropped for a second straight day on Friday, falling $0.043 or 1.47% to $2.877, pressured by expected lighter weekend industrial demand and in some follow-through to huge losses in the gas futures market on Thursday.

U.S. INTEGRATEDS

(Late Thursday) Reuters - Chevron Corp said a flange leak on a hydrogen line triggered a flaring event at its 245,271 barrel-per-day Richmond, California, refinery on Thursday, according to a filing with the state pollution regulators.

(Late Thursday) Press Release - Hess Corporation announced the election of former U.S. Senator Sam Nunn to its Board of Directors. Senator Nunn served with distinction as a United States Senator from Georgia for 24 years (1972-1996). He was chairman of the Senate Armed Services Committee and the Permanent Subcommittee on Investigations and also served on the Intelligence and Small Business Committees. He is retired from the law firm of King & Spalding.

INTERNATIONAL INTEGRATEDS

(Late Thursday) Reuters - BP Plc warned of planned flaring at its 265,000 barrel-per-day (bpd) Los Angeles-area refinery in Carson, California, according to a filing with state pollution regulators.

(Late Thursday) Reuters - A sulfur recovery unit (SRU) at BP Plc's 225,000 barrel-per-day (bpd) Cherry Point, Washington, malfunctioned on Monday, the refinery told the Northwest Clean Air Agency in a report which was released.

(Late Thursday) Reuters - Petrobras, Brazil's state-led oil producer, and London-headquartered BP Plc, found oil in a deep-water offshore well in a new area for exploration off Brazil's northeast coast, t he company said in a securities filing.

Reuters - Petrobras, Brazil's state-led oil company, will likely report a slide by two-thirds in second-quarter profit, extending a string of weak quarterly results, after crude prices fell and the Brazilian currency weakened against the dollar, boosting debt costs.

Reuters - Royal Dutch Shell Plc said it is restarting an unspecified unit at the upgrader facility of its 100,000 barrel-per-day Scotford refinery near Edmonton, Alberta, according to a notice on a community information line.

Reuters - Vietnam state oil marketer PV Oil has bought 600,000 barrels of Champion crude from Royal Dutch Shell Plc in a tender, traders said. The cargo will be delivered on Sep. 10-25. The price was not immediately available.

Reuters - Statoil's Snoehvit LNG plant in the Barents Sea has been restarted after a three-week unplanned outage, the firm said.

U.S. E&PS

• AREX reported 2Q’12 EPS of $0.05 versus the Thomson Reuters I/B/E/S estimate of $0.11.
• EOG reported 2Q’12 EPS of $1.16 versus the Thomson Reuters I/B/E/S estimate of $0.91.
• SD reported 2Q’12 EPS of $0.07 versus the Thomson Reuters I/B/E/S estimate of $0.01.
• SWN reported 2Q’12 EPS of $0.26 versus the Thomson Reuters I/B/E/S estimate of $0.26.

(Late Thursday) Press Release - Approach Resources Inc. reported results for second quarter 2012. Second quarter 2012 production totaled 702 MBoe (7.7 MBoe/d), compared to 608 MBoe (6.7 MBoe/d) produced in second quarter 2011, a 16% increase. Estimated second quarter 2012 production increased 7%, compared to first quarter 2012 production of 654 MBoe (7.2 MBoe/d). Oil production for second quarter 2012 increased 120% to 230 MBbls, compared to 104 MBbls produced in second quarter 2011, and increased 20% compared to first quarter 2012 oil production of 191 MBbls. Second quarter 2012 production was 33% oil, 32% NGLs and 35% natural gas, compared to 17% oil, 39% NGLs and 44% natural gas in second quarter 2011.

Global Hunter Securities downgraded Berry Pertroleum to ‘Neutral’ from ‘Buy’ after missing production estimates.

(Late Thursday) Press Release - EOG Resources, Inc. reported second quarter 2012 net income of $395.8 million, or $1.47 per share. This compares to second quarter 2011 net income of $295.6 million, or $1.10 per share. Consistent with some analysts' practice of matching realizations to settlement months and making certain other adjustments in order to exclude one-time items, adjusted non-GAAP net income for the second quarter 2012 was $312.4 million, or $1.16 per share. Adjusted non-GAAP net income for the second quarter 2011 was $299.2 million, or $1.11 per share.

The results for the second quarter 2012 included impairments of $1.5 million, net of tax ($0.01 per share) related to certain non-core North American assets, net gains on asset dispositions of $75.1 million, net of tax ($0.28 per share) and a previously disclosed non-cash net gain of $188.4 million ($120.7 million after tax, or $0.45 per share) on the mark-to-market of financial commodity contracts. During the quarter, the net cash inflow related to financial commodity contracts was $173.2 million ($110.9 million after tax, or $0.41 per share). (Please refer to the attached tables for the reconciliation of adjusted non-GAAP net income to GAAP net income.)

Howard Weil downgraded SM Energy to ‘Market Perform’ from Market Outperform’.

Societe Generale upgraded SM Energy to ‘Buy’ from ‘Hold’ on favorable reward/risk.

Oppenheimer Capital raised SM Energy to ‘Buy’ from ‘Hold’

(Late Thursday) Press Release - SandRidge Energy, Inc. announced financial and operational results for the quarter and six months ended June 30, 2012. Adjusted EBITDA of $269 million for second quarter 2012 compared to $157 million in second quarter 2011. Operating cash flow of $222 million for second quarter 2012 compared to $136 million in second quarter 2011. Net income available to common stockholders of $809 million, or $1.47 per diluted share, for second quarter 2012 compared to net income available to common stockholders of $196 million, or $0.42 per diluted share, in second quarter 2011. Adjusted net income of $36.8 million, or $0.07 per diluted share, for second quarter 2012 compared to adjusted net loss of $1.6 million, or $0.00 per diluted share, in second quarter 2011.

(Late Thursday) Press Release - Southwestern Energy Company announced its financial and operating results for the second quarter of 2012. For the second quarter of 2012, Southwestern reported a net loss of $488.1 million, or $1.40 per diluted share. The net loss for the three months ended June 30, 2012 included a $935.9 million non-cash ceiling test impairment ($578.9 million net of taxes) of the company's natural gas and oil properties resulting from lower natural gas prices. Excluding the non-cash impairment, Southwestern reported net income for the second quarter of 2012 of $90.8 million (reconciled below), or $0.26 per diluted share, compared to net income of $167.5 million, or $0.48 per diluted share, for the prior year period.

(Late Thursday) Press Release - Southwestern Energy Company announced that Greg D. Kerley will retire as an executive of the company and its subsidiaries effective at the end of the third quarter. In connection with Mr. Kerley's retirement, the company has promoted R. Craig Owen to Chief Financial Officer effective October 1, 2012.

Capital One Southcoast upgraded Stone Energy to ‘Strong Buy’ from ‘Buy’ based on valuation.

Howard Weil downgraded Swift Energy to ‘Market Perform’ from Market Outperform’.

CANADIAN E&PS

Bank of America Merrill Lynch upgraded Talisman Energy to ‘Neutral’ from ‘Underperform’ on recent performance.

OIL SERVICES

• DRC reported 2Q’12 EPS of $0.45 versus the Thomson Reuters I/B/E/S estimate of $0.49.

(Late Thursday) Press Release - Dresser-Rand Group Inc., a global supplier of rotating equipment and aftermarket parts and services, reported net income attributable to Dresser-Rand of $34.0 million, or $0.45 per diluted share, for the second quarter 2012, compared with net income attributable to Dresser-Rand of $11.2 million, or $0.14 per diluted share, for the second quarter 2011. Second quarter 2011 results included a number of pre-tax charges totaling approximately $21.9 million ($0.16 per diluted share after-tax) related to the previously disclosed flood at the Company's Wellsville, New York facility ($10.8 million or $0.08 per share), non-recurring Grupo Guascor integration and transaction-related expenses ($7.9 million or $0.06 per share), and accelerated amortization of deferred financing fees and a prepayment premium associated with redemption of the Company's previously outstanding Senior Secured Notes ($3.2 million or $0.02 per share).

Press Release - PATTERSON-UTI ENERGY, INC. reported that for the month of July 2012, the Company had an average of 224 drilling rigs operating, including 219 rigs in the United States and 5 rigs in Canada. Average drilling rigs operating reported in the Company's monthly announcements represent the average number of the Company's drilling rigs that were operating under a drilling contract. The Company cautioned that numerous factors in addition to average drilling rigs operating can impact the Company's operating results and that a particular trend in the number of drilling rigs operating may or may not indicate a trend in or be indicative of the Company's financial performance. The Company intends to continue providing monthly updates on drilling rigs operating shortly after the end of each month.

DRILLERS

(Late Thursday) Press Release - Noble Corporation announced that its report of drilling rig status and contract information has been updated as of August 2, 2012. The report, titled "Fleet Status Report," can be found on the Company's Web site, under the "Quick Links" section of the homepage.

Global Hunter Securities downgraded Rowan Cos to ‘Neutral’ from ‘Buy’.

REFINERS

• SUN reported 2Q’12 EPS of $1.22 versus the Thomson Reuters I/B/E/S estimate of $0.48.

(Late Thursday) Press Release - Sunoco, Inc. reported net income attributable to Sunoco, Inc. shareholders of $248 million ($2.35 per share diluted) for the second quarter of 2012 versus a net loss attributable to Sunoco, Inc. shareholders of $125 million ($1.03 per share diluted) for the second quarter of 2011. Excluding special items, Sunoco had income of $129 million ($1.22 per share diluted) for the second quarter of 2012 versus income of $20 million ($0.17 per share diluted) for the second quarter of 2011.

Reuters - Standard & Poor's Ratings Services affirmed its 'BBB' corporate credit and senior unsecured rating on Valero Energy Corp. At the same time, we revised the outlook to negative from stable.

MLPS

(Late Thursday) Press Release - Cheniere Energy, Inc. announced that it has repaid in full the entire outstanding principal balance plus accrued interest payable totaling $206.9 million under the 2.25% Convertible Senior Unsecured Notes due August 2012. On a standalone basis, Cheniere has no further debt outstanding.

Reuters - A top Canadian cabinet minister has blasted Enbridge Inc's environmental record, casting more doubt on whether the company will be able to build a controversial pipeline from Alberta's oil sands to the Pacific Coast. Heritage Minister James Moore's comments - the first attack by any top Canadian government official on Enbridge - also reveal that a rare split has opened up inside the cabinet over the proposed C$6 billion ($6 billion) Northern Gateway project, which the Conservative government backs strongly.

Reuters - Enbridge Inc, whose pipelines ship the bulk of Canada's oil exports to the United States, defended the record of its system on Friday after a U.S. regulator said it had concerns about the safety of the operation following a series of spills. The U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) have refused to allow Enbridge to reopen its 318,000 barrel per day Line 14 after a rupture spilled 1,200 barrels of oil into a Wisconsin field a week ago.

(Late Thursday) Reuters - The U.S. pipeline regulator raised pressure on Enbridge Inc over the latest spill on its U.S. oil pipeline network, demanding that it submit a plan to improve the safety of the entire 1,900 mile (3,060 km) system before restarting a key Midwest line. The U.S. Pipeline and Hazardous Materials Safety Administration said it added new conditions to this week's corrective action order for the restart of Line 14 to address failures on that pipeline as well as a string of others in recent years on its U.S. system, part of the world's longest network for transporting oil and petroleum products.

(Late Thursday) Press Release - MarkWest Energy Partners, L.P. reported quarterly cash available for distribution to common unitholders, or distributable cash flow (DCF), of $91.2 million for the three months ended June 30, 2012, and $200.4 million for the six months ended June 30, 2012. Distributable cash flow for the three months ended June 30, 2012, represents distribution coverage of 103 percent. The second quarter distribution of $88.6 million, or $0.80 per common unit, will be paid to unitholders on August 14, 2012. The second quarter 2012 distribution represents an increase of $0.01 per common unit, or 1.3 percent, over the first quarter 2012 distribution and an increase of $0.10 per common unit, or 14.3 percent, over the second quarter 2011 distribution. As a Master Limited Partnership, cash distributions to common unitholders are largely determined based on DCF. A reconciliation of DCF to net income, the most directly comparable GAAP financial measure, is provided within the financial tables of this press release.

(Late Thursday) Press Release - Sunoco Logistics Partners L.P. announced net income attributable to partners for the second quarter 2012 of $152 million ($1.28 per unit diluted), compared with $94 million ($0.80 per unit diluted) for the second quarter 2011. Additionally, Sunoco Partners LLC, the general partner of the Partnership, declared a cash distribution for the second quarter 2012 of $0.47 per common unit ($1.88 annualized) to be paid on August 14, 2012 to unit holders of record on August 8, 2012. This represents a 10 percent increase over the first quarter 2012 cash distribution of $0.4275 per common unit ($1.71 annualized) and a 16 percent increase over the second quarter 2011 distribution of $0.4050 per common unit ($1.62 annualized).